Revamped CPA exam will bring big changes

Accounting

The American Institute of CPAs and the National Association of State Boards of Accountancy are laying the groundwork for a major overhaul of the CPA exam that will see material being rearranged and moving to new sections, while emphasizing more technology skills.

The AICPA released an exposure draft earlier this month previewing the proposed changes for the 2024 exam and asking for feedback (see story). The AICPA and NASBA have been working together on a CPA Evolution initiative as a way to modernize the accounting licensure model and make it more relevant for today’s skills. They also hope to attract more young people to the accounting profession, which has seen a drop in recent years in accounting students and CPA candidates, as firms compete with other industries that are dealing with staff shortages during the so-called “Great Resignation” sparked by the pandemic.

The proposed changes may not come as a big surprise to those who have been closely following the CPA Evolution initiative and the model curriculum already proposed by the AICPA and NASBA. But for those who haven’t been following the developments closely, they bear watching and accountants should weigh in with their comments.

AICPA building in Durham, N.C.

“I think they did a good job of signaling where the exposure drafts were going to go,” said Angie Brown, senior director of product management at Becker, a provider of educational courses for the CPA exam. “It confirmed some things that were in the model curriculum they released last June and the conversations that they’ve had as they moved toward this release date. I wasn’t surprised, but I was very pleased by what we’ve seen in the blueprint. There had been some signaling in the model curriculum last year and even in the survey they did late last summer of the different interested parties and partners regarding where they were thinking things would go between the old and the new exams.”

One of the major changes will expand the number of exam sections from four to six. “They’ve taken into account the fact that there’s a lot being tested on the current four exams, and what they’re showing in the blueprint is they’re taking the current four exams and essentially divvying up the content between six, with some new additions in tax and then a lot of new things in the ISC Information Systems and Controls discipline exam. In many ways, they’re reapportioning and maybe rightsizing the different content being tested across all of the tests, which is great news for exam candidates if it doesn’t change that much between this exposure draft and the final.”

The AICPA and NASBA wanted the exam to test more for technology skills, as software has become an essential part of being an accountant, with greater demand in the job market for skills like data analytics. Critical thinking is also an important part of being a CPA, especially when it comes to auditing and exercising professional skepticism. 

“They definitely are making sure that technology is being properly covered across all of these six sections, and every section of the new exam does have some level of technology components,” said Brown. “They’ve talked about the way technology and data analytics weave through the profession. They certainly let us know for several years that is coming, especially with the changes they made to the audit blueprint. On July 1 of last year, they issued a new audit blueprint that had additional technology topics. Then the model curriculum really spread data analytics and critical thinking across all the exam sections.”

With the increased number of exam sections, some material is moving from one of the current required core sections, such the Financial Accounting and Reporting (FAR) part, to a newer one like Business Analytics and Reporting (BAR) that’s more optional. 

“Although there are those new technology elements, there’s not really a whole lot else that’s new,” said Becker. “They told us for a long time that more technology testing was coming, but otherwise they’re taking the current FAR exam and splitting out the topics to go into the new BAR exam, which is the Business Analytics and Reporting exam. FAR has been kind of a hurdle for candidates. There’s a lot to study, and candidates feel overwhelmed when they prepare for the FAR exam. The fact that they’re rightsizing it and moving some of the content, especially content that’s really only applicable to those who are going to focus their careers in those areas, will make the FAR exam — which is core accounting and needs to be passed by every student — more manageable for candidates. I think that’s really great news.”

As accounting firms find themselves under the microscope for audit failures and exam cheating, the revamped CPA exam will continue to include ethics questions. “We haven’t lost any ethics coverage, so there are still ethics topics being covered in audit [AUD] and REG [Taxation and Regulation],” said Brown. “Those are the areas where we mostly focus on ethics topics, and that’s still true, so no change there.”

One related change that may be surprising, though, involves an increased emphasis on business law. “They did increase the weight of business law, which is different from ethics, in the REG exam, which will still be a core exam, and will still focus on tax topics as well as business law,” said Brown. “They’re proposing that the weight they assign to the business law portion of the REG exam will go up. Right now it’s 10 to 20%, and on the new exam, they’re proposing 15 to 25%. That wasn’t necessarily something that we saw coming, especially because they signaled a couple of years ago with the prior practice analysis that they might possibly pull business law from the CPA exam. Obviously they haven’t done that, and it does seem like they’re putting a little bit more emphasis on it. It doesn’t really change the core topics being covered. It’s just that there are probably going to be a few more questions on business law on the REG exam than maybe in the past.”

The new exam may make the profession more attractive to younger people who may have been discouraged by previous exam changes. The AICPA trends report from 2021 found accounting graduates trended downward in the 2019–20 academic year, with decreases of 2.8% and 8.4% at the bachelor’s and master’s levels, respectively. The number of new CPA exam candidates entering the CPA pipeline declined in 2020 due to short-term closings and the various restrictions at Prometric test centers, with overall COVID concerns carrying forward into 2021. While new CPA exam candidates decreased less than 0.5% between 2018 and 2019, there was a 17% decrease between 2019 and 2020, though there was a 6% increase between 2020 and 2021.

“We are all very concerned about the CPA pipeline,” said Brown. “If the new exam as outlined by CPA Evolution appeared to be harder, then that could be a difficult message to share with candidates and wouldn’t appeal to the young professionals we want to bring into the profession. They are rightsizing some of the sections and taking content out of FAR, which every candidate has to take, and moving that to BAR, and taking some of the content that’s currently tested on the REG exam and moving that more advanced tax content to the TCP [Tax Compliance and Planning] exam, which is the discipline exam that you would take only if you really thought that tax was going to be your professional goal. The fact that they’re moving the more difficult topics to the discipline exams and making the core exam more manageable for candidates could appeal to the candidate population.”

That could reverse some of the recent trends in the CPA candidate numbers. “We saw numbers come down after the 2017 exam launch, which was the last really big exam change,” said Brown. “There was a perception at that time that the exam had become harder, because they added higher-order skills. That seems to have impacted the perception of the difficulty of the CPA exam. But this shift — making the core exams more focused on what every newly licensed CPA needs to know and moving to the additional exams the topics that really aren’t necessary for everyone, is a great message. I’m hoping that is attractive to candidates and that they perceive this move as a positive direction.”

While some of the advanced tax topics are moving from the REG to the TCP section, and some of the advanced accounting and reporting topics are shifting from FAR to BAR, the audit section of the exam isn’t changing as much.

“The AUD exam, which will be a core exam when the new CPA exam launches, will be very similar to the audit exam today,” said Brown. “We’re actually not seeing content moving from the current audit exam to the more advanced exam within the audit lineup, which is ISC, the Information Systems and Controls exam. Interestingly, with REG and FAR becoming demonstrably simpler because content is moving to the disciplines, audit stays the same. Now, that’s not a bad thing because the audit content has been pretty manageable.”

However, some content is moving from the Business Environment and Concepts (BEC) section to the ISC exam, in part to test for SOC (service-oriented controls) audits. 

“The ISC exam, the Information Systems and Controls, is really going to be almost wholly a new exam,” said Brown. “There are some topics in the current BEC exam, things like business process and controls, and IT basics that will move from the current BEC exam to the ISC exam, but everything else on that exam is going to be new. There is going to be a new emphasis on IT audits, especially SOC engagements. Today SOC engagements are tested from the perspective of an auditor’s use of SOC reports in a normal financial statement audit as a tool for assessing controls. That emphasis on SOC engagements in the current audit will stay the same, but the new ISC exam is going to have a major portion on how you perform a SOC examination engagement. That’s never been tested on the CPA exam before, in the same way that some of the key IT auditing and technology content that comes under ISC has never been tested on the CPA exam before. That exam really is mostly new across the six core discipline structures under CPA Evolution.”

The revamped exam has not yet been finalized, but it’s expected to launch in time for 2024. Its impact on the job market for accountants and the skills they bring to their jobs probably won’t be apparent for several years.

“It will be interesting to see how many candidates choose the ISC discipline exam, given that the content on it is so new and not necessarily traditional, if you think of traditional accounting being things like audit and tax,” said Brown. “It just goes to show the AICPA’s desire to demonstrate that accountants really do understand technology, and the increasing place of technology and technology-related audits in the profession.”

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